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 The move by the board of the California Public Employees'
Retirement System (Calpers) — the world's biggest public pension
fund with assets of $277 billion — was welcomed by the state's
Democratic governor, Jerry Brown, who had been pushing for Calpers
to act more aggressively in how it funded the provision of pensions
for city and state workers.
But higher pension contributions are bound to be met with angst by
some California cities, which say they are already struggling to
meet Calpers's rate demands.
Pension contributions to Calpers are usually the biggest expense for
California cities that pay into the system. Two cities in the state,
San Bernardino and Stockton, are in bankruptcy. Pension costs were a
significant factor in their budget crises.
The Calpers board on Tuesday voted to change funding assumptions to
reflect longer life expectancies for workers — two years for men and
18 months for women. That will lead to higher rates as the pension
system seeks to absorb the costs of retired workers living longer.
The board agreed to a request by Brown to hasten to this summer an
increase in the state's contribution to the fund, for the pensions
of state employees.
The rate hike will hit the California state treasury from July 1 and
will be phased in over three years, ultimately costing an extra $1.2
billion a year and bringing California's annual contribution to
Calpers to about $5 billion.
Apparently recognizing the politically treacherous path of hiking
rates for cities immediately, Calpers voted to not change
contributions for cities, counties and other municipal entities
until mid-2016. Rising pension costs — also a significant factor
in the bankruptcy of Detroit, Michigan — have become a lightning rod
for some lawmakers and fiscal hawks. They argue that lavish pension
deals for public workers, many of which were agreed to by states and
cities before the 2008 financial crash, are unsustainable.
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Michael Sweet, a municipal bankruptcy attorney in San Francisco,
said higher pension costs will mean less money for cities to spend
on other public services, such as police and roads.
"Cities seem to be asked to pay what is necessary to make sure
Calpers has the funds available to cover the pensions these cities
promised their workers," Sweet said.
Brown had argued that delaying state contributions, which was
proposed by some Calpers board members, was a false economy and
would ultimately cost California more in the long run.
"The Board today took important and responsible action to strengthen
California's pension system," Brown said in a statement.
After the vote, Calpers, in a statement, said: "While today's action
will result in higher pension costs for the State and...contracting
employers, it helps to stabilize pension costs over time and puts
Calpers on a path to meet the pension obligations promised to
current and future public employees."
(Reporting by Tim Reid; editing by Clarence Fernandez)
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